A:

The primary difference between Berkshire Hathaway's Class A stock (BRK-A) and Class B stock (BRK-B) is the share price. As of January 2018, Berkshire Hathaway Class A is trading for around $304,180 per share, compared with $202 for the Class B shares. But there are other distinctions.

Twenty years ago, the company was content with its highly valued, single class of stock. But the market was demanding a lower-priced, more common-stock nibble at the Berkshire pie. So in 1996, Warren Buffett, CEO of Berkshire Hathaway, and the board responded by issuing 517,500 shares of Class B shares (BRK-B), offering the ability to invest in the company for, initially, one-30th the price of a Class A share of stock. A 50-to-1 stock split in 2010 sent the ratio to one-1,500th. Class B shares carried correspondingly lower voting rights as well (one-two hundredth of the per-share voting rights.)

The main reason for the introduction of Class B shares was to allow investors to be able to purchase the stock directly instead of having to go through unit trusts, or mutual funds that mirror Berkshire Hathaway's holdings. Buffett explained this as follows in his 1996 annual letter to shareholders: "As I have told you before, we made this sale in response to the threatened creation of unit trusts that would have marketed themselves as Berkshire look-alikes. In the process, they would have used our past, and definitely non-repeatable, record to entice naive small investors and would have charged these innocents high fees and commissions." If the stock was left in the hands of unit trusts, "Berkshire would have been burdened with both hundreds of thousands of unhappy, indirect owners (trustholders, that is) and a stained reputation."

Buffett has also declared that the Class A shares will never experience a stock split because he believes the high share price attracts like-minded investors, those focused on long-term profits rather than on short-term price fluctuations.

Along with being more accessible to retail investors, Class B shares offer the benefit of flexibility. If an investor owns just one share of Class A and is in need of some cash, the only option is to sell that single share, even if its price far exceeds the amount of capital he needs to access. In contrast, a holder of Class B shares can liquidate part of his or her Berkshire Hathaway holdings just up to the amount needed to meet cash flow requirements. Class B also provides a potential tax benefit. Its much lower price means that BRK-B stock can be passed to heirs without triggering the gift tax as passing Class A shares does.

One final difference is that Class A shares can be converted into an equivalent amount of Class B shares any time a Class A shareholder wishes to do so. The conversion privilege does not exist in reverse. Class B shareholders can only convert their holdings to Class A by selling their Class B shares and then buying the equivalent in Class A.

For related reading, see "Warren Buffett: How He Does It."

RELATED FAQS
  1. What is the difference between Class A shares and other common shares of company's ...

    Discover how a company can break down its common stock into multiple classes and how these classes differ from one another ... Read Answer >>
  2. How are a mutual fund's C shares different from A and B shares?

    Each class of mutual fund shares are distinguished by their specific load fees and structures, defined as A, B and C class ... Read Answer >>
  3. Why would a company have multiple share classes, and what are super voting shares?

    Before investing in a company with multiple share classes, be sure to learn the difference between them. Read Answer >>
  4. What is Warren Buffett's annual salary at Berkshire Hathaway?

    Learn more about how much Warren Buffett receives in salary and how he continues to stay involved with his company and his ... Read Answer >>
  5. Who are Berkshire Hathaway's (BRK.A) main competitors?

    Find out all about the main competitors for Berkshire Hathaway, a Warren Buffett-led diversified holding company with involvement ... Read Answer >>
Related Articles
  1. Investing

    What are Class B Shares?

    Class B shares are one classification of common stock issued by corporations.
  2. Insights

    Top 4 Shareholders of Berkshire Hathaway (BRK.A, BRK.B)

    Learn more about the largest institutional shareholders invested in Berkshire Hathaway.
  3. Retirement

    Which Fund Share Class is Best for Retirement?

    Mutual funds are a popular financial vehicle. Here's how to choose the best share class for retirement among a fund's many options.
  4. Investing

    Berkshire Hathaway Reports Massive Earnings

    Berkshire Hathaway reported another massive jump in earnings and book value growth, leading Buffett to address the company's buyback plans.
  5. Investing

    Where Does Warren Buffett Keep His Money?

    Understand who Warren Buffett is and where he has invested his money over the years.
  6. Investing

    Why Hedge Fund Managers are Loving Buffett

    Berkshire Hathaway was a favorite among hedge fund managers last year. What is the draw at this particular point in time?
  7. Investing

    How to Attend Berkshire Hathaway's Annual Meeting (BRK.A, BRK.B)

    An overview of what is required to go to the Berkshire Hathaway Annual General Meeting.
  8. Investing

    The Top 6 Subsidiaries Owned by Berkshire Hathaway

    Learn the story behind a few of the privately-held companies owned by Berkshire Hathaway.
  9. Financial Advisor

    Berkshire Hathaway's 4 Most Profitable Lines of Business (BRK-A, BRK-B)

    Within the incredibly profitable Berkshire Hathaway are these four incredibly profitable companies – some of Warren Buffett's smartest picks.
  10. Investing

    Berkshire hits all-time high with price per share $250,000 (BRK-A, BRK-B)

    Warren Buffet is enjoying a post-election surge in Berkshire stock. Will it last?
RELATED TERMS
  1. Baby Berkshire

    Baby Berkshire is the 50:1 stock split after the market closed ...
  2. Dual Class Stock

    A dual class stock is the issuing of various types of shares ...
  3. Alphabet Stock

    An alphabet stock is an equity share that is tied to a specific ...
  4. Classified Shares

    Classified shares are different classes of common stock, each ...
  5. A-Share

    An A-share is a share class offered in a family of multi-class ...
  6. Class Of Shares

    Class of shares is an individual category of stock that may have ...
Trading Center